Cybertruck smoke screen? Analysts are sounding the alarm over Tesla’s margins

En route to You’re here (TSLA) second quarter results this week, the electric vehicle giant’s highly anticipated Cybertruck topped the news cycle after Saturday’s report of the first vehicle produced at the company’s Austin plant. Meanwhile, analysts continue to sound the alarm over margins.


Over the weekend, just four days before the results, Tesla tweeted a photo of the first Tesla Cybertruck made at its factory. Chief Executive Elon Musk commented “congratulations to the Tesla team”. Tesla stock reacted on Monday, jumping 3.2% to 290.39 in market trades.

With the focus on the Cybertruck, significant unknowns and questions remain ahead of the second quarter results. How well have margins held up after aggressive corporate price cuts? And, as we approach the third quarter, the risk of oversupply is a problem. Additionally, Saturday’s announcement is mounting pressure among investors who want to know when mass production and deliveries will begin for the long-delayed Cybertruck.

Tesla originally said the Cybertruck would start at $39,900, with a $69,900 tri-motor version with a range of over 500 miles. But it removed those listings from its website years ago.

Musk has already teased a Q3 Cybertruck event. Late last week, Tesla launched the Cyberquad, a Cybertruck-inspired children’s ATV, in China. The electric mountain bike will go on sale in China on July 14 for around $1,670.

Tesla Stock

TSLA rose 2.5% last week to 281.38, hitting a new 2023 intraday high on Friday. TSLA stock is up 128% in 2023. The stock is working a buy point of 313.80 after deep consolidation dating back to late September, according to MarketSmith analysis.

Tesla stock ranks third in IBD’s automaker industry group. He has a composite rating of 98 out of 99. Tesla has a relative strength rating of 96 and his EPS rating is 93 out of 99.

Analysts are cautious on earnings

On Monday, Wells Fargo analyst Colin Langan raised the company’s price target on Tesla stock to 265 from 170, while maintaining an equal weight rating.

Langan wrote Monday that while Tesla exceeded second-quarter delivery volume estimates, Wells Fargo is cautious about how price cuts may have affected Tesla’s second-quarter automotive margins. Langan is also concerned that production volumes will exceed demand heading into the second half of 2023.

As Tesla beat second-quarter delivery volume estimates, Wells Fargo expects the company’s gross margin on automobiles to fall to 17.5% due to continued price cuts and a stronger mix. weak, Langan wrote on Monday.

“Margins, margins, margins,” Wedbush analyst Daniel Ives, a longtime Tesla bull, wrote on Monday.

Ives said Tesla should be able to beat Wall Street estimates in the second quarter, but the focus is on automotive gross margins “to assess the impact of price cuts and what that means for future margins”.

The Wedbush analyst wrote that he also expects automotive gross margins to be around 17.5%. However, Ives added that gross margins “are expected to recover over the next few quarters and return to the 20% level by 2024”.

This follows Citigroup raising its Tesla share price target to 278 from 215 last week. Analyst Itay Michaeli maintained a neutral rating on TSLA. He sees a “neutral to slightly negative” setup for Tesla in the second quarter report. Michaeli remains concerned about price cuts eating away at margins.

Margins fell in the first quarter

On April 19, Tesla reported a sharp decline in first-quarter earnings, while revenue lacked views. The global electric vehicle giant’s profit margins fell below 20% as the company executed an aggressive price reduction strategy during the first part of 2023.

The electric vehicle company’s total gross profit was $4.5 billion, with Tesla’s gross profit margin of 19.3%, down from 23.8% in the fourth quarter and 29.1% a year earlier.

In the fourth quarter, gross margins on the automobile, excluding regulatory loans and leases, slipped to 18.3% against 23.8%. That remains below the 20% gross margin “floor” that Tesla previously targeted.

Tesla has continued its strategy of price cuts and discounts since then, leading analysts to worry that margins will continue to be under pressure.

Tesla stock: what to expect from the second quarter

The EV company released its second-quarter financial statements on Wednesday. Analysts expect earnings to rise about 4% to 79 cents per share. Wall Street is forecasting revenue totaling $24.26 billion, up 43% from a year ago.

Investors will be tuned in for information on an upcoming updated Model 3. Investors will also be looking for information on a future Mexican factory, which will manufacture Tesla’s next-generation model. Musk hinted at the next-gen model, but no more than that.

TSLA reported record global shipments in early July – as price cuts, tax credits and rebates propelled demand well above Wall Street forecasts.

Tesla deliveries were 466,140 in the second quarter, topping the first quarter record of 422,875 and the fourth quarter record of 405,278. Model 3 and Model Y deliveries reached 446,915 in the second quarter. Model S and X deliveries reached 19,225. Production hit 479,700, again topping deliveries, even with Tesla limiting production below capacity.

Please follow Kit Norton on Twitter @KitNorton for more coverage.


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